The Massively Overlooked Trend in the U.S. Workforce

A late-summer series... Visiting a donut shop... A major shift in the U.S. workforce... Why unemployment is so low... Changing demographics... It means room for more 'tightening'...

Editor's note: This week, you are going to be treated to our second annual "late-summer series." Why? Well, I (Corey McLaughlin) am on the road, spending some time with my wife and kids and taking some time away from my desk.

We're still watching the markets closely – and will pop in with any urgent updates – but we've primarily arranged to bring you a few different excellent voices this week in the Digest.

Today, you'll hear from Stansberry NewsWire editor Kevin Sanford, who has a great take on the jobs market right now and what to make of reported low unemployment. Tomorrow, Ten Stock Trader editor Greg Diamond – the only person I know to have called both the top and the bottom for U.S. stocks in 2022 – will share his current outlook.

On Wednesday and Thursday, we'll share a pair of special guest essays from two of my favorite financial writers, before Dan (another favorite, of course) closes the week out as usual on Friday...

I hope you enjoy it all. Here is Kevin to get the week started, with a piece that he recently published in the NewsWire in response to a reader question. If you're not receiving the NewsWire, our entirely free news service, you really should. It's a great way to stay updated on the markets each day. You can sign up for it here.

I (Kevin Sanford) recently received this question from a reader...

What are your thoughts on the macro demographics that suggest we don't have enough qualified working-age people right now and probably in the foreseeable future? Is unemployment always going to be low in the U.S. due to these demographics? – Kurt H.

Today I will share my answer. Let's start with a story...

Last week, I finally got the chance to visit a new donut shop folks had been raving about...

It had almost every donut flavor you could think of... from classics like cinnamon sugar and chocolate sprinkles to brown butter waffle and matcha strawberry. It also sold beverages and other treats – like the famous black-and-white cookie from Seinfeld. To say the least, I was excited to see it for myself.

I walked in after the morning rush. There were a few people seated and enjoying their donuts. But overall, the place wasn't too busy.

Even still...

There was only one employee working the entire café...

Again, the donut shop wasn't overrun with customers at the time...

But what if it had been?

What if other folks had the same idea I did and decided to come after the morning rush? What if there was some sort of donut catastrophe in the kitchen and a long line of customers at the register waiting to order? What if a customer happened to spill their coffee right in the middle of the store?

That's just too much for one employee to handle.

Unfortunately, this has become the norm for countless places of business in the U.S. Whether it be a donut shop, a deli, a boutique clothing store, or even just your local convenience store, the number of employees working has shrunk.

And it is all a result of a major shift taking place in the nation's labor force...

Over the past two decades, Baby Boomers and Gen X'ers have been aging out of the primary workforce (which is considered ages 25 to 54).

Then the pandemic hit, and things in the labor market got even worse. As we know, the pandemic sent unemployment to levels not seen since the 2008 financial crisis.

Many of the people who lost jobs during the pandemic didn't come back... For the most part, these folks were retirement-eligible professionals.

In my opinion, current macro demographics don't just "suggest" we have a dwindling workforce... They make it pretty obvious that we have a big problem in the labor market.

Let's look at a few charts to see what I mean...

The chart below shows the growing population of 65-year-olds in the U.S. over the past several decades. It also shows the growth in employees aged 65 and older...

As you can see, over the past 13 years, about 22 million people turned 65 or older. For comparison, over the previous 50 years (from 1960 to 2010), 23 million people turned 65 or older.

Now look at that bracket's labor participation rate over the years...

The labor force participation rate plummeted in 2020 during the pandemic. In the three years since then, it has only been able to recover about half of those losses.

Now let's take a look at individuals aged 55 to 64...

From 2000 to 2020, this population grew by 21 million people. Now, recall back to our first image showing the population growth of 65-year-olds. The period between 2010 and 2020, which saw an addition of 18 million people, had such tremendous growth because folks had graduated from this age bracket to that one.

This means that based on natural aging, we can expect the population of those aged 65-plus during the 2020s to reach similar levels as we saw during the 2010s.

Now look at the labor participation rate for those aged 55 to 64...

While it appears that this age group has regained its pre-pandemic labor participation rate, the actual number of people and the number of those working have fallen. The population for those aged 55 to 64 is down to 41.5 million today from 2020 levels. And the number of those folks working is down to about 26.5 million.

Moving on to the majority of the workforce, let's look at those aged 25 to 54...

As we noted earlier, the several million Baby Boomers and Gen X'ers who stepped onto the working scene in the '70s, '80s, and '90s are gradually working their way out of the system.

The only issue is that the younger generations (aka the millennials and even some Gen Z'ers) simply aren't entering the workforce at the same levels.

Let's take a look at this group's labor participation rate...

Even though participation rates are still relatively strong, the number of folks entering the workforce has remained extremely flat over the past two decades.

This group has only added 4.4 million people to the workforce since 2000. That's only 62.9% of the population growth in this segment.

The bottom line is that the unemployment rate only measures those looking for work who are currently unemployed. It does not account for the fact that people are leaving the workforce and simply not being replaced.

This is how we get a historically low unemployment rate.

Remember, government labor statistics are slow to account for real-time changes. They can be manipulated, and they don't consider the amount of people working multiple jobs.

The fact of the matter is that we are seeing a mass exodus in the labor market...

Since the 1970s, "high unemployment" has been characterized as anything around 7% to 10%. In fact, since 1975, the unemployment rate has peaked six times, reaching levels near or above 8% five times.

Today, we are likely to see less volatility in unemployment given the changing state of the labor market. That means unemployment rates that hover around 5% to 7% could be considered the new "high unemployment," just as we saw pre-1970.

So, while unemployment could rise in the case of a recession, getting back to levels we saw in 2008 would be extremely difficult.

Editor's note: As you likely recall, the Federal Reserve always references a "stubbornly" low unemployment rate as it weighs its dual congressional mandate of "maximum employment" and "stable prices."

Based on Kevin's analysis, it would seem that there is more slack in the labor market that can be tightened by stricter monetary policy before job losses mount. In other words, if high inflation persists, there won't be a roadblock for higher interest rates – and it's due to demographics and the aging of older generations out of the workforce.

I think you can see why you may want to consider following Kevin in the Stansberry NewsWire. Each day, he shares a look at the major market-moving news and events ahead... and shares great insight and analysis. And it's all for free.

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New 52-week highs (as of 8/18/23): Sprott Physical Uranium Trust (U.U-TO).

In today's mailbag, feedback on Dan Ferris' latest Friday Digest… Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Lest we forget, a million in a 401k is not the same as a million dollars after taxes. So maybe an IRS discount should be applied to the 79,000 number." – Subscriber Bruce B.

"This from [Friday] night's Digest certainly sums up Dan's discussion of AMC… 'New 52-week highs (as of 8/17/23): Gambling.com (GAMB).'" – Subscriber Jeff B.

Good investing,

Kevin Sanford
Charleston, South Carolina
August 21, 2023